CSR Provisions under Clause 135 in Companies Bill passed by Lok Sabha

In a positive development for the Sector, Lok Sabha has passed Companies Bill 2011. The Bill includes provision for a mandatory 2% CSR contribution by the companies. Clause 135 requires that every company which fulfills any of the following criteria in a financial year:

a networth of more than Rs 500 crores or

net profit of more than Rs 5 crores in a year or

turnover of Rs.1000 crores

has to constitute a “CSR Committee of the Board” consisting of at least 3 directors including an independent director.

These companies have to spend minimum 2% of “last three years’ average net profits” towards CSR policy. If not spent, board has to give detailed reasons for not spending on CSR in the Director’s Report.

Role of the Committee

The Committee is to formulate and recommend to the Board a Corporate Social Responsibility Policy which should indicate the activities to be undertaken by the Company. Additionally, the Committee has to also recommend the quantum of expenditure to be incurred on these activities. Finally, the Committee has to monitor the Corporate Social Responsibility Policy of the company from time to time.

It is hoped that Rajya Sabha also undertakes the legislative business during this session itself and passes the Companies Bill 2011.

As mentioned in the post there are three major criteria, turnover above Rs 1000 crores, Networth above Rs 500 crores and net profit above Rs 5 crores. If a corporate qualifies under anyone of htese then CSR provisions becomes mandatory. The law covers any company which qualifies under above criteria thus covering all companies whether proviate or otherwise.

It\’s very good news for the development sector. Profit making companies earns the profit from the peoples of Country. Now they can also share their contribution with the society. But, there should be some mechanism to handle the fund. It should not be totally in the hand of corporates or companies, otherwise it could be manipulated. Also not purely in the hand of Government as we all know the way of government agencies in distribution of funds.